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Accenture Commercial Aerospace Insight Report

2016 headwinds pushing out growth to 2017

EXECUTIVE SUMMARY

The commercial aerospace market faces continued headwinds that are tempering the gains made over the past few years.

Continued 2016 softness in new orders may mean that those operators who do come to the table enjoy more of a buyers’ market. As of the end of September, both Airbus and Boeing are at less than half of their 2015 full-year net orders.

Flat production capacity, coupled with the continued ramp up in production, will put pressure on costs and drive additional investments in efficiency, production automation, cost visibility, and supplier development.

Lagging aircraft retirements and additional shop visits for older platforms will provide more opportunity for cost-competitive third-party MROs. These may also delay OEMs’ ability to differentiate with proprietary service offerings targeted at newer platforms.

North America and Asia are the main drivers of forecast commercial aerospace growth, with major OEMs claiming that cyclical ups and downs are smoothing out. In contrast to recent years, growth year-to-year has also slowed, with the third quarter of 2016 projected to have -4.2% growth QoQ, and shrink by -1.5% YoY. The last half of 2016 looks to be spent catching up with 2015 levels, with flat YoY growth forecasted.

Looking further ahead, 2017 is shaping up to deliver 2.3% annualized growth.

However, industry executives we polled remain concerned about geopolitical risks. Over the next 12 months, these concerns are focused on terrorism and increased political instability.

While there has been some belt-tightening and furloughs at a few companies, production capacity and employment are both relatively stable compared with 2015 levels. Both are expected to increase during 2017. Major areas of cost – materials and labor – have remained much the same as 2015, and are expected to remain stable through 2017.

Overall, Accenture’s econometric modeling, together with the results from our poll of aerospace executives, support the case for a slowdown in 2016 air traffic growth compared to 2015, with
2017 picking up.

We are also likely to see a slowdown in the number of aircraft retirements as lower fuel prices positively impact the economic basis for maintaining older aircraft in service.

WHAT KEEPS AEROSPACE EXECUTIVES UP AT NIGHT?

Geopolitical risks continue to weigh on industry executives’ minds.

In the next 12 months, political instability and terrorism loom large as the key areas of concern.

Looking at a 12-24 month time-horizon, deteriorating economic conditions are a growing cause for concern. Interest and exchange rates are seen as relatively lower-risk areas, but concerns about these increase somewhat in the longer term.

ACCENTURE COMMERCIAL AEROSPACE INSIGHT REPORT

ABOUT THE ACCENTURE COMMERCIAL AEROSPACE INSIGHT REPORT

Combining sophisticated econometric modeling methodologies to drive quantitative quarterly forecasts on the health of the commercial aviation market, together with insights from leading industry executives worldwide, the “Accenture Commercial Aerospace Insight Report” provides a unique perspective on short- and medium-term trends and drivers in this market. Instead of focusing solely on OEM sales, the report covers a wide range of activities, from suppliers to MRO.

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